Volume-Weighted Average Price (VWAP) Indicator Guideline

The MT4 Vwap indicator for MetaTrader is volume-based. This MetaTrader indicator is popular among forex and stock traders. Because they consider it as an excellent alternative to the Moving Average tool. In fact, The Vwap is a price-based indicator and takes into account volumes in the Tradingview chart. Also, it provides chartists with the average trading price during the day. Thus, gives insights into the asset valuation along with the trend. To explain, the Vwap abbreviation of this MT5 technical indicator stands for Volume Weighted average price. Subsequently, our lesson will concentrate on the reading and uses of the Vwap lines indicator on MT5 charts.

Vwap Indicator

What is the VWAP indicator?

Volume weighted average price Indicator is utilized to express the average price weighted by transaction volumes. The logic behind this analytic tool is to catch prices taking into account the volume of transactions. Moving averages are the most basic and famous indicators based on average prices. However, they fail to detect volume of FX transactions. Therefore, it is a moving average derived indicator that considers transaction volumes in the average price calculation.  Moreover, the vwap strategy can be applied to various financial markets. However, this strategy is better designed for currencies, stocks, and futures. As a result, trading other instruments with vwap may furnish weak signals. Also, VWAP is basically an intraday tool. Thus, scalping timeframes give the best result. It may provide swing traders with false signals that make no sense. In conclusion, the best vwap timeframes are up to one-hour timeframes. In other words, timeframes from M1 to H1.

Volume-Weighted Average Price line price analysis

When the vwap remains below the price for a long period, there’s an upside continuation. To clarify, this is an uptrend confirmation signal.
Alternatively, when it remains above the price for a long time, there’s a downside continuation. To explain, this is a downtrend confirmation signal.
Forex traders perceive these long periods as an overall assessment before initiating any position. Thus, the vwap is a trend confirmation indicator for MT5 charts.

How do you read The VWAP chart

Examples:

Market price above the Vwap may suggest that:

  • Overvalued trading instrument
  • Expensive financial instrument
  • The asset is trading at a premium

Market price below the Vwap may suggest that:

  • Undervalued financial instrument
  • Cheap trading instrument
  • The asset is trading at a discount

Note that these are intraday suggestions!

Vwap indicator formula and calculation

The Vwap calculation is as follows:

Vwap indicator formula

Now we will explain step by step the vwap calculation process inside the MetaTrader editor:

 Starting with the price, Forex traders may consider various average price calculations. Because closing prices do not reflect true market conditions. To clarify, median, typical or weighted prices are considered.
Now, let’s explain the average price using different calculations:

  • Median price calculation :
    Median price = [ ( High + Low ) / 2 ]
  • Typical price calculation:
    Typical price = [ ( High + Low + Close ) / 3 ]
  • Weighted price calculation:
    Weighted price = [ ( Open + Close + High + Low ) / 4 ]

Yet, the typical price is the most famous average price. Also, each average price will give a different vwap value.

   Second, every average price is multiplied by its trading volume. To explain, this is done over the user-defined vwap period.

   Third, we sum these multiplications together. Thus we solved the numerator.

   Fourth, we compute the total trading volume over the vwap period. Thus, we solved for the denominator.

   Finally, we apply the vwap calculation to get its value.

Trend analysis based on vwap indicator

The MetaTrader Vwap indicator assists Forex traders to identify trends in MT4 platforms. In fact, it’s a straightforward trend indicator that provides direction signals :

  • Bullish trend identification: Market price trading beyond the vwap

  • Ranging trend identification: Market price trading beyond and under the vwap

  • Bearish trend identification: Market price trading under the vwap

Trend analysis

Breakout analysis based on vwap indicator

Chartists can trade vwap breakouts similar to moving averages:

  • A long position is initiated when the market crosses up the vwap line. To clarify, we talk about bullish breakouts.
  • A short position is initiated if the price crosses down the vwap line. To explain, we talk about bearish breakouts.
Braekout analysis

How to use the Vwap indicator ?

In a strong downtrend move, the vwap line acts as a resistance trendline that resists price appreciation. Alternatively, in a strong uptrend move, it acts as a support trendline that supports price appreciation. Let’s illustrate this through an example:
During the downtrend move, the vwap line resisted price appreciation several times. Thus, vwap acted as a resistance trendline. Indicating bearishness continuation. Once the price cuts the vwap line multiple times, the downtrend strength falls down. Thus, a sideways period is born. After that, the trend could continue or reverse. In our example, it reversed. Because the price failed to cut down the vwap line. Consequently, this line became a support level and a bullish trend emerges.

Vwap indicator for Tradingview is useful to trade trends. But how ?

In this part of the course, we will explain powerful trend continuation signals provided by Vwap lines. To explain, the crossover of weekly and monthly Vwaps is the key trend indication.

Buying rules

This system aims to detect strong uptrend signals in order to trade a long position. To explain, a bullish trend exists when:

  • Market price should be above the yellow line (daily line) and/or close to the red line (weekly line).
  • The yellow line (daily vwap) must be already above the red one (weekly vwap). To explain, this indicates an uptrend has already begun.
  • The red line (weekly vwap) crosses above the green one (monthly vwap). To clarify, this indicates an uptrend continuation.

Finally, money management orders could be set:

  • Stop-loss order under the previous swing low.
  • Take-profit order less or equal to a 1:2 RRR for risk-averse traders.
Vwap Buying rules

Selling rules

This system aims to detect strong downtrend signals in order to trade a short position. To clarify, a bearish trend exists when:

  • Market price should be below the yellow line (daily line) and/or close to the red line (weekly line).
  • The yellow line (daily Vwap) must be already below the red one (weekly vwap). To explain, this indicates a downtrend has already begun.
  • The Red line (weekly vwap) crosses below the green one (monthly vwap). To clarify, this indicates a downtrend continuation.

Finally, money management orders could be set:

  • Stop-loss order above the previous swing high.
  • Take-profit order less or equal to a 1:2 RRR for risk-averse traders.
The higher the RR ratio, the higher the failure probability of the vwap system!
Selling rules

Download Vwap indicator for MT4

MT4 Vwap is a volume-weighted average price indicator for MetaTrader 4 . This MT4 vwap version displays three lines on the main candlestick chart.
Vwap indicator MT4 calculation may look complicated. However, the MetaTrader platform provides you directly with three colored lines:

  • Yellow line: daily vwap
  • Redline: weekly vwap
  • Greenline: monthly vwap

This indicator is suitable for all stocks and currencies. Also, it’s applicable to all timeframes.

mt4 indicator

Download Vwap indicator for MT5

MT5 Vwap is a volume-weighted average price indicator for MetaTrader 5 . This MT5 vwap version supplies Forex traders with an intra-day VWAP level. In fact, this technical indicator offers signals based on this Vwap line. To explain, the mt5 Vwap indicator position relative to the price is a trend signal. That’s why chartists consider the Vwap as a trend following indicator.

Vwap indicator mt5

Download Vwap indicator for Tradingview

Vwap is a volume-weighted average price indicator for  Tradingview. This technical tool aims to calculate the average price weighted by the trading volume.
It’s generally used on an intraday basis. That is to say, it seeks to estimate the intraday price movement on an intraday chart. Its interpretation is similar to the moving average indicator. Thus, when prices are above the VWAP line, the trend is bullish. Alternatively, when prices are below this line, the trend is bearish.
In conclusion, the Vwap indicator Tradingview is employed to identify trends.

Vwap indicator Tradingview

Conclusion

Just like other technical tools, the vwap indicator is incapable of delivering 100% accurate signals. In fact, it can deliver weak or false signals. Because its performance highly depends on the chosen timeframe along with market conditions. That’s why you should carefully choose timeframes and understand strong entry points. In order to succeed in the Vwap trading system.

In conclusion, the vwap indicator is a solid MT5 indicator for intraday analysis.

Key Takeaways

Let’s recap the vwap Tradingview indicator:

  • This is a moving average derived tool
  • The vwap line serves as a support and resistance trendline in a trending market.
  • It’s proper for trend confirmation. Thus, for getting trend signals.
  • Vwap is an MT5 intraday technical indicator. Consequently, it provides scalping signals.
  • Unlike moving averages, vwap accounts for trading volumes.
  • Some MT4 vwap indicators draw one line on the chart. And some others plot three lines.